As a startup entrepreneur who's worked hard to find a great business idea, you likely can't wait to tell investors all about your awesome product or service. Before you do, though, you may want to refocus your pitch: The product or service you're selling won't get investors interested in financing your startup. Instead, the ingredients that will really make them believe in your business are your customers, their profitable problems, a rock-solid pitch — and you.
Continue Reading Below
Here are four important things to keep in mind when you're pitching to an investor.
If you think your potential investors care most about what your new business sells, you're dead wrong, said Randy Thompson, award-winning founder and CEO of angel investor firm VA Angels.
"Customers are the coolest way to validate that you are onto something," Thompson said. "This is true for all industries."
Thompson said the most important thing to him as a potential investor is the customer, and he pays close attention to the information the startup founders have on why customers will want this particular product or service.
Continue Reading Below
"Ideally, they know exactly why the customer is dying to have [the product or service], and is not just mildly interested," Thompson said.
As an investor, he also wants to see that the entrepreneurs have done their research and created a comprehensive customer profile, including as much detail as possible. [5 Ways to Win Over Startup Investors]
Problems may point to profit
Investors also want to know if the startup's product solves a problem worth solving.
"The idea [for a solution] is much less important, as the solution often changes as you orbit around the problem," said Sean Johnson, partner at Digital Intent and professor of marketing at Northwestern University. "Do we know the customer's 'jobs to be done'?"
'Jobs to be done' refers to a customer motivation framework constructed by Harvard business professor Clayton Christensen.
"It provides clarity to the fuzzy realm of 'customer needs' by focusing on the specific tasks or jobs customers are trying to accomplish, rather than focusing on particular solutions, features, specs, etc.," Johnson told Business News Daily.
Asking this simple question helps business identify jobs that are extremely critical and underserved, and gives a good framework for knowing whether it's a problem worth pursuing.
Your exit strategy matters
Depending on the firms you're dealing with, you may have to make them believe that a bigger company will want to buy you out in the future — and you need to convey this during your pitch.
"As an angel investor, the most common way new companies try to get me to consider investing in them is via a pitch," Thompson said.
Every pitch includes six critical items, Thompson continued: a product, a customer, a committed founder, a way to protect your idea from the competition, deal structuring and an exit strategy.
"Points five and six are the ones we really focus in on, because remember, the product does not matter," Thompson said.
Johnson and his team look for startup characteristics that point to a successful exit strategy. Some of the questions they look at when evaluating a startup are: Do we have clear potential acquirers? Do we know at what size we become interesting? Do we have a good sense of what acquirers would gain from buying a company like this — data, client lists, talent, etc.? They also consider whether the founder is on board with the idea of acquisition versus "going for the home run."
Investors want strong, committed founders and solid startup support
Investors also look for an engaged and enthusiastic founder with a passionate startup team.
"There has to be a compelling story and passion," Thompson said. "I want to get engaged with the founders, and the 'why' that is more interesting than the product."
Johnson also said that he carefully considers the attitude, commitment and passion of the founders.
"Does the founder have a 'whatever it takes' attitude to make cold calls, hit the pavement, do anything they can to move the needle each day?" Thompson said. "Are they passionate about solving the problem?"
In addition to a charismatic, committed and passionate founder, new ventures also need startup support teams.
"I think we should start teaching startups that [they need] boards and advisory boards, and that as a person building teams, you get known by the people you hang out with, and that becomes important," Thompson said.
Originally published on Business News Daily.
- 15 Creative Financing Methods for Startups
- 10 Tips for a Winning Elevator Pitch
- Stay Positive! How to Deal with Negative Feedback on Your Business Idea